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Sunday, September 14, 2008

So, you want to sell your house…

Yesterday I talked about what it costs to buy a house. Many first time buyers are totally naïve about the costs involved and, unfortunately, too many mortgage brokers take advantage of that naiveté to suck those buyers into situations that are bad for them. My advice, as usual, was to seek out an honest and competent mortgage person who is willing to sit with you and go over the details of what it is going to cost and who will give you a written “good faith estimate”.

Today, let’s talk about the other side of the equation. What it costs to sell. This, too, is a topic that is misunderstood by many, which usually results in a failed attempt to save money by putting the house up “For Sale By Owner.” Ask any FSBO seller what he/she thinks they are saving and they’ll tell you “all of those real estate commissions.” They usually think that they will save 5-6% on the sale of the house and they have no idea what they will still have to pay.

So let’s look at this scenario. I will use only what I would normally ask for in a real estate listing, since all listings are subject to a negotiated process, as far as commissions go. Then we’ll also look at the reality of a FSBO sale and see what was really saved, if anything.

When I take a listing I ask the sellers for a 6% commission. I explain that I will be offering cooperating brokers and their agents half of that, or 3%, if they bring the buyer to the transaction. So my commission on the sale is really 3% and the seller is allowing me to offer the other 3% as an incentive to other Realtors to show the property and maybe bring a buyer.

I also advise my clients that the real cost of selling a house is about 7.5% of the sale price. The real estate commissions make up 6% of that 7.5% and the other 1.5% is made up of the fees, taxes and title insurance costs that the title company will charge to do the closing. Even if that FSBO seller is lucky enough to have an unrepresented buyer make him the offer, he will still have that 1.5% cost, just to consummate the deal.

But, what is more likely to happen is that the FSBO seller will get a call from a Realtor who has a client who would like to see the house. That agent is gong to ask, “Will you pay me a commission, if I bring a buyer for your house?” Unless the seller is as stubborn as a Missouri mule they will likely agree to pay the agent his/her 3% if they bring the buyer. All of a sudden, half of the savings that the seller thought he would have is gone, plus he actually has that 1.5% that he didn’t figure on still lurking in the background.

So, maybe he/she says, “Well, I’m still saving at least 3% on the sale.” OK. But, what is it costing you to save that 3%? Who’s paying for your advertising? Who’s scheduling and running your open houses? Who’s reviewing any offers for you and negotiating counteroffers? And, how much longer is it taking you to sell, because you don’t have the exposure to the Multi-List Service and to all of the agents in the area?

Study after study by the National Association of Realtors has shown that it takes 3-6 months longer to sell and that the FSBO seller gets 5-10% less for the property than those that are represented. If you just do the math – 3-6 months times the monthly payments and/or 5-10% less on the final sale price, it doesn’t take long to realize that the 3% saved is long gone by the time the place sells. Think about it. You will be taking on all of the responsibilities that the Realtor normally handles and you will be saving less than 3%, likely much less than 3% onthe deal. You may even end up making less on the sale than you would have with a listing agent involved.

So, if you want to sell your house, get help - call a professional Realtor. You will actually end up better off that trying to save a bit by trying to go FSBO. The market doesn’t care what you want for your house. The market doesn’t care what you NEED for your house. The market is cruelly efficient at determining what your house is currently worth and your Realtor will help you understand that. If what the Realtor tells you the market will bear for your house isn’t enough, then don’t sell it right now. It’s that simple. It does nothing but waste time and money to put a house on the market at a price that is well above what the Realtor tells you it’s worth. If you have too, in order to convince yourself, get 2-3 opinions from different Realtors.

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